Oil prices dropped in Asian trading on Thursday following a larger-than-expected interest rate cut by the Federal Reserve, raising concerns about the U.S. economy.
Brent crude futures for November fell 34 cents, or 0.46%, to $73.31 a barrel by 0015 GMT, while WTI crude futures for October decreased by 42 cents, or 0.59%, to $70.49 a barrel.
The Fed’s decision to cut interest rates by half a percentage point on Wednesday indicated a slowing job market, overshadowing the usual positive effects of rate cuts on economic activity.
“While the 50 basis point cut signals significant economic challenges ahead, bearish investors were left unsatisfied after the Fed raised its medium-term rate outlook,” noted ANZ analysts.
Weak demand from China’s slowing economy further weighed on prices. “Concerns about ongoing demand from China overshadowed the Fed’s decision,” said IG market analyst Tony Sycamore.
Data from China’s statistics bureau revealed that refinery output slowed for a fifth consecutive month in August. Additionally, China’s industrial output growth hit a five-month low, with retail sales and new home prices also showing weakness.
However, Citi analysts projected that Chinese oil demand could rebound by 300,000 barrels per day year-on-year in the fourth quarter due to improved operations at independent refineries and the start-up of Shandong Yulong Petrochemical, which could provide some support to global demand.
Markets are also closely monitoring developments in the Middle East following explosions involving walkie-talkies used by Hezbollah, which occurred after similar explosions involving pagers the day before.
Israeli officials have not commented on the attacks, but security sources suggest that Israeli spy agency Mossad may be involved, raising concerns about a potential escalation in Israel’s ongoing conflict in Gaza.
